Bank of Cyprus staff hold banners reading "shame" during a protest at the bailout deal at the central bank in Nicosia. Photograph: Petros Karadjias/AP

Recall the classic cartoon scene of a character who simply continues over the edge of the precipice, ignoring the fact that there is no longer ground under their feet – they fall down only when they look and notice they're hanging over an abyss.

Is this not how ordinary people in Cyprus must feel these days? They are aware that their country will never be the same again, that there is a catastrophic fall in the standard of living ahead, but the full impact of this is not yet properly felt, so for a short period they can afford to go on with their normal lives like the cartoon character suspended in mid-air. And we should not condemn them: such a delayed response is also a survival strategy – the real impact will come silently, when the panic is over. This is why it is now, when the Cyprus crisis has begun to disappear from the media that one should think and write about it.

There is a well-known joke from the last decade of the Soviet Union about Rabinovitch, a Jewish man who wants to emigrate. The bureaucrat at the emigration office asks him why, and Rabinovitch answers: "There are two reasons. The first is that I'm afraid that in the Soviet Union, the communists will lose power, and the new power will put all the blame for communist crimes on us, Jews – there will again be anti-Jewish pogroms …" "But", interrupts the bureaucrat, "this is pure nonsense, nothing can change in the Soviet Union, the power of the communists will last forever!" "Well," responds Rabinovitch calmly, "that's my second reason."

It is easy to imagine a similar conversation between an EU financial administrator and a Cypriot Rabinovitch today. Rabinovitch complains: "There are two reasons why we are in a panic here. First, we are afraid that the EU will simply abandon Cyprus and let our economy collapse…" The EU administrator interrupts him: "But you can trust us, we will not abandon you, we will tightly control you and advise you what to do!" "Well," responds Rabinovitch calmly, "that's my second reason."

This is the deadlock at the core of Cyprus's predicament: it cannot survive in prosperity without Europe, but nor can it with Europe – both options are worse, as Stalin would have put it. What we can see emerging on the horizon are the contours of a divided Europe: its southern part will be increasingly reduced to a zone with a cheaper labour force, outside the safety network of the welfare state, a domain appropriate for outsourcing and tourism. In short, the gap between the developed world and those lagging behind will now exist within Europe itself.

This gap is reflected in the two main stories told about Cyprus, which resemble two earlier stories about Greece. There is what can be called the German story: free spending, debt and money laundering cannot go on indefinitely, etc. And this is the Cypriot story: the brutal EU measures amount to a German occupation that is depriving Cyprus of its sovereignty.

Both are wrong, and the demands they imply are nonsensical: Cyprus by definition cannot repay its debt, while Germany and the EU cannot simply go on throwing money to fill the Cypriot financial hole. Both stories obfuscate the key fact: that there is something wrong with the entire system in which uncontrollable banking speculations can cause a whole country to go bankrupt. The Cyprus crisis is not a storm in the teacup of a small marginal country, it is a symptom of what is wrong with the entire EU system.

This is why the solution is not just more regulation to prevent money laundering and so on, but a radical change in the entire banking system – to say the unsayable, some kind of socialisation of the banks. The lesson of the worldwide crashes after 2008 is clear: the whole network of financial funds and transactions, from individual deposits and retirement funds to the functioning of all kinds of derivatives, will have to be somehow put under social control, streamlined and regulated. This may sound utopian, but the true utopia is the notion that we can somehow survive with only cosmetic changes.